2023 (4) TMI 604 - AT - Central Excise

MODVAT Credit - Process amounting to manufacture or not - purchase of item Chloropyriphos falling under chapter heading 3808.10 of Central Excise Tariff Act, 1985 - said products was purchased in bulk and repacked in the factory of production in smaller packs of different sizes - Chloropyriphos so purchased in bulk can be regarded as input in terms of Rule 57 A of Central Excise Rules, 1944 or not - reversal of MODVAT Credit under erstwhile Rule 57I of Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944. HELD THAT - The appellant are engaged in the activity of repacking of the insecticide Chloropyriphos purchased in bulk, into smaller retails packs and cleared the same under the appellant s brand on payment of excise duty. It is also not disputed that during the impugned period process of repacking of the said goods does not amount to manufacture. Therefore, the issue before us is that whether the MODAVT/CENVAT credit taken by the appellants on Chloroypyriphos which were cleared by them on payment of duty, after the process of re-packing and affixing their brands is legally correct or not. The appellant have paid more duty than the credit availed after value addition. When duty paid at the time of clearance equal to or higher than the credit availed, the same is to be treated as reversal of credit. Therefore, no further reversal of credit is required as held by Tribunal in number of cases. Such payment of duty that too in excess of the credit availed tantamount to reversal of credit and there is no need to once again reverse the Modavt/Cenvat credit taken - In a similar situation, the Hon ble Apex Court in the case of COMMISSIONER OF C. EX. CUS., VADODARA VERSUS NARMADA CHEMATUR PHARMACEUTICALS LTD. 2004 (12) TMI 93 - SUPREME COURT held that when Cenvat credit wrongly availed is exactly equivalent to the amount of duty paid, the consequence is revenue neutral and hence the demand for such wrong availment of credit is not sustainable in law. The ratio of this judgment squarely applies to the facts of the present case. The duty paid by the appellants has been accepted by the department which is admittedly more than the Modavt/CENVAT credit availed by the appellant. Therefore, following the various judicial pronouncements as relied upon by the appellant, the appellant are not required to reverse the credit. Appeal allowed.

Summary

Issues involved:
The appeal involves the admissibility of modvat credit under erstwhile Rule 57A of Central Excise Rules, 1944 on the purchase of item 'Chloropyriphos' and whether the process of repacking into smaller packs from bulk can be considered as manufacturing activity.

Summary:

Issue 1: Admissibility of modvat credit under Rule 57A

The appellant availed modvat credit on the purchase of 'Chloropyriphos' under Rule 57A. However, the lower authorities disallowed the credit, stating that the repacking process did not amount to manufacturing activity. The appellant argued that once goods are cleared on payment of duty, the credit on inputs cannot be denied. The tribunal noted that the appellant had paid more duty than the credit availed, making it a revenue-neutral situation. Citing judicial precedents, the tribunal held that no further reversal of credit was required, and the appellant was not obligated to reverse the credit.

Issue 2: Repacking process as manufacturing activity

The appellant was engaged in repacking 'Chloropyriphos' into smaller retail packs, which was cleared under their brand after paying excise duty. The tribunal acknowledged that the repacking process did not amount to manufacturing. The revenue argued that since the repacking activity did not constitute manufacturing, the modvat credit taken by the appellant was incorrect. However, the tribunal found that the duty paid by the appellant exceeded the credit availed, leading to a reversal of credit. Relying on legal principles, the tribunal concluded that the appellant was not required to reverse the credit, and the impugned order was set aside with consequential relief.

This judgment addresses the issues of admissibility of modvat credit under Rule 57A and the classification of repacking process as manufacturing activity. The tribunal emphasized the revenue-neutral nature of the appellant's duty payment compared to the credit availed, leading to the decision in favor of the appellant.